Definition – What is Debt Ratio?
Debt Ratio is ratio of total debt to total assets in a company.
A debt ratio of ‘1’ means that there is the same amount of debt as there are assets.
A debt ratio of more than one means that there is more debt than assets in the firm.
A debt ratio of less than one means that there are more assets than debt in the firm.
Formula – How to calculate Debt Ratio
Debt Ratio = Total Debt / Total Assets
A company has total debt of $5,000 and total assets of $7,000.
Debt ratio = $5,000 / $7,000 = 0.7143
Therefore, this company’s debt ratio is 0.714.